After such a loss, traders blame themselves, repeatedly going through the details of the unsuccessful trade. They blame the market for the “wrong behavior” or themselves for errors in what then seems an absolutely clear situation. Sometimes, the trader-market relationship takes the form of a vendetta. Traders consider the market as their personal enemy, treat it in an unfriendly way (even with hate) and dream of immediate revenge. Doing so, they miss the fact that they are essentially blaming nature for changing sunny weather to rain. It is very important to be prepared beforehand for this change. Trades should always have close at hand one or a few options in case of sudden change of the situation/weather, so that their foresight assures their good time or good profit. The third main psychological problem is trader uncertainty, especially when traders are inexperienced in abilities and skills—specifically about each market position they hold. Immediately after each position is opened and a money contract is bought, traders start questioning their choices. This is revealed most vividly in the case of a moderately active market at the moment of fluctuations close to the opening price of the position. Any movement (even insignificant) against their position causes traders to have an irresistible desire to sell the recently acquired contract to limit losses, until it is too late and the market does not shift too far away from their position opening price. On the other hand, an insignificant market shift in the desirable direction causes the same desire to eliminate the position, until it provides for any (even tiny) profit and before this profit does not turn into losses. Scared and troubled traders rush and race about. They open and liquidate their positions too often, and experience many small losses and gains. Within a short period of time, they turn intermittently into bulls or bears. As a result, they suffer losses on a dealer’s spread and/or commissions when there were no significant market changes, and all the market fluctuations were no more than just regular market “noise.” Such losses are typical for beginners and individual traders with small investment capital or little experience and insufficient psychological preparation.
Not uncommon are cases of traders’ impulsive decisions on trading, without any plans or serious preliminary market analysis. The position is opened under an impulsive, invalid emotional reaction. Often, it can be explained by traders’ fears of losing a brilliant opportunity to earn money they think is being offered by the market at that moment. I have witnessed these attempts to jump onto the last carriage of a departing train, and such attempts have ruined a lot of traders. Many traders cannot calmly watch any kind of market movements. Some of my students have confirmed this reality. If they have no positions at the moment of more or less significant market movement, they consider it as a lost opportunity to gain profit. This can inflict a serious shock to them.
Psychological Challenges of Speculative
When they have no position, they seem unable to realize that each market movement can be considered both ways, and the opposite situation can quite possibly develop. Statistics show that, at each market movement, the chances to lose are much higher than to profit. How does it happen that reasonable people (who in everyday life, without any emotion, can watch a bank cashier counting other people’s money) consider the fact of market movement as a threat to their own pockets? Why is other people’s money in the hands of a bank cashier not considered as a lost profit, whereas capital shift on the market and the corresponding quote fluctuations are the causes of negative emotions? I think the answer is in the illusory simplicity of business itself, which is considered by many people as a good and simple opportunity to earn a lot of easy money. Similar notions are widely spread among novice currency traders. The soon traders abandon such ideas, the sooner they become professionally efficient traders. The most difficult problem for every trader (regardless of their experiences) is to learn as quickly as possible how to recover quickly from losses, which are inevitable in this business. At the same time, they must
learn to handle shocks and psychological damage inflicted by the losses, because these situations could negatively influence their future work.
The losses themselves and the fear of losing, both of which permanently torture traders, negatively influence their ability to make reasonable decisions in a complicated situation. These factors also undermine traders’ ability to follow their own rules about trade strategies and systems.
I have become personally acquainted with hundreds of traders and have watched their activities. I have taught many students, and have had my own experience as a trader at various steps of my career in the currency market. Therefore, I have come to the conclusion that the main causes of trader failures in speculative operations in the FOREX market are without a doubt those associated with psychological trauma—the inability to control their own emotions and to find an adequate way to fight stress. I have explored ways of solving the psychological problems that arise from operations in the FOREX market, with the focus on increasing selfresistance to stressful situations and increasing trade effectiveness. As a result of my research, I have managed to develop a trading method that also helps to withstand shocks and keep emotions under control. To solve the problem of stress, I had to separate the problem into several parts and solve them one by one.
First, it was necessary to develop the philosophical conception of my attitude toward market situations. By this I mean not only the general trade methods, which are discussed in the second part of the course, but also my own conception of the market and associated psychological problems, which most traders (including myself) have to overcome daily. The following formula is essential for my conception: I can’t be wrong if I don’t have an opinion. I had this in mind as I thought about how to avoid unwanted stress and emotions that are associated with trading. When you find a way to make reasonable decisions not based on your own opinion about future market trends but in accordance with certain market signals, the problem of diminishing and almost completely eliminating psychological pressure and stress will be solved. The key issue in this case is a philosophical attitude about market trends—they are natural phenomena beyond human control and forecast. The trick was to develop a secure and effective trade strategy that could advantageously use these natural phenomena. This formula seemed logical and could provide the basis for the development of a conceptual trading strategy. In reality, however, this job took considerable time. Nevertheless, the formula was used as a base for the development of my system- trade methods that I called the method of discrete-systematic trading. Moving from the basic formula and general philosophical idea through intermediate conclusions, I came to the development of the trade method. This method provides for trading practically without emotions, and it became a very effective and profitable tool to earning money in currency speculations.
The logical chain of my arguments and intermediate conclusions is the following:
- Idea 1. The main source of negative emotions and stresses is the unfulfilled trader’s forecast, based on the trader’s notion about market future trends.
- Idea 2. To avoid unnecessary emotions and psychological pressure, it is better to completely abandon any notion about market future trends because this notion itself forms the forecast, which could be wrong.
- Idea 3. The basic idea of the formula “I cannot be wrong if I don’t have an opinion” transfers the moral obligation for trading results from the trader to the market. Now, the fluctuation of the market can be considered as a manifestation of the so-called “God’s Will” or “Force of Nature,” so the trader cannot be responsible for that.
- Idea 4. It is possible to abandon attempts to make forecasts and still have a profit only if one stops trying to foresee market trends but follows them instead.
- Idea 5. It is possible to follow market fluctuations using only the system- trade method and developing a trading strategy providing effective monitoring of these fluctuations.
- Idea 6. One of the best methods of this approach could be the one providing the objective evaluation of the possibility of the market’s movements at any moment in both possible directions.
